A few reports (like
this one) have popped up recently talking about the inner financial workings
between Activision Blizzard and corporate parent Vivendi (thanks Joao).
This article attempts to pull back the curtain to explain to us regular
munchkins what magic the financial wizards are performing, explaining that this
will saddle the publisher with some of Vivendi's gigantic debt. Here's how this
works:

Activision Blizzard is a very successful company, and has just
over $4 Billion in its accounts, much of it kept in off-shore accounts. The
gaming company has done well for itself by focusing on big titles and not
spreading itself out to mobile and free-to-play games. They would need to go
into debt in order to meet the special dividend that will be put forth by
Vivendi because of US taxes that will come into play when the money changes
hands. Current estimates to the amount of debt that A/B will be forced to take
on sits at about $1.5 Billion.

Vivendi has accrued over $17 Billion in debt, which was the result of poor
business strategies involving telecoms. The original agreement with Activision
Blizzard stated that the parent company could not require special dividends from
A/B, but that deal expired earlier this month. Vivendi is wasting no time taking
everything it can from the game company.

Although Activision CEO Bobby Kotick seems interested in buying the company back
from Vivendi, that hasn’t happened. Vivendi has already tried selling off the
company, but it didn’t seem there was an interested party who had the cash to
buy the world’s largest game publisher. There doesn’t seem to be any reason why
the special dividend put forth by the parent company won’t go through.

El Pit wrote on Jul 24, 2013, 15:14:"...$4 Billion in its accounts, much of it kept in off-shore accounts..."

Yeah. Paying taxes is evil. Let the people pay taxes, not us multi-billion companies.

They did pay their taxes; they were taxed at where the item was sold in the first place. No one is dumb enough to pay taxes again, particularly when the entity trying to exert the second tax did nothing to provide for the sale being taxed.

Try reading up on the double irish with dutch sandwich.https://en.wikipedia.org/wiki/Double_Irish_arrangementThey never paid taxes the first time.Essentially it uses IP to transfer profits outside of countries that have taxes, and transfer expenses to them instead.Example:

Google chairman Eric Schmidt says it is Britain's own fault that his company has paid just £10 million in U.K. corporate taxes between 2006 and 2011, even though it had revenues of £11.9 billion in the period from the nation.

Apple does this too:

As it stands, the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent. (Apple does not disclose what portion of those payments was in the United States, or what portion is assigned to previous or future years.)

By comparison, Wal-Mart last year paid worldwide cash taxes of $5.9 billion on its booked profits of $24.4 billion, a tax rate of 24 percent, which is about average for non-tech companies.

linkAll the big tech companies with lots of IP do this. Its perfectly legal.

MattyC wrote on Jul 24, 2013, 12:33:How in the world did they manage to rack up that much debt while owning Blizzard and Activision? Were they totally unable to get income from them under the prior agreement?

Uhm, investement and expansion is often arranged by debts. Vivendi constantly swaps shares with their partners for all their assets.

The buyout of a 50% stake from an (ex-)partner will easily cost you some billions. A merger will cost you some billions before optimization pays off. Investing in new tech costs billions.

Debts are the standard. And debts won't really impact AB, as long as their business prospects are promising. And they are.

The only surprise here is that Vivendi is so desperate for cash and found no better alternative than losing so much money by paying taxes.

Pigeon wrote on Jul 24, 2013, 16:30:Because normal people and small businesses don't have a fleet of lawyers and accountants to keep the IRS from slapping them with tax dodging charges like big corporations do?

El Pit wrote on Jul 24, 2013, 15:14:"...$4 Billion in its accounts, much of it kept in off-shore accounts..."

Yeah. Paying taxes is evil. Let the people pay taxes, not us multi-billion companies.

They did pay their taxes; they were taxed at where the item was sold in the first place. No one is dumb enough to pay taxes again, particularly when the entity trying to exert the second tax did nothing to provide for the sale being taxed.

You have to excuse the jealous types who think corporations should be taxed 10 times over so they can give that money to people who refuse to work for a living.

Pigeon wrote on Jul 24, 2013, 16:30:Because normal people and small businesses don't have a fleet of lawyers and accountants to keep the IRS from slapping them with tax dodging charges like big corporations do?

You need a fleet of lawyers and accountants? No not really.

--"For every human problem, there is a neat, simple solution; and it is always wrong." --H.L. Mencken

its a tax write off move. AB have lots of cash but not in the US. To move the cash to the US will involve tax. Taking on debt in the US reduces the tax liability. Thus AB can move cash and write off the debt with the tax liability. That way the parent is more solvent and AB can do something USEFUL with the offshore money.

Having lots of money is pointless if you cannot actually spend it (i.e. use it to pay wages in the US etc)

Its not the cough that carries you off but the coffin they carry you off in.

DG wrote on Jul 24, 2013, 13:29:It is not very clear why V taking $3b from AB, who has $4b, will result in AB needing to take on $1.5b debt. A few possibilities occur to me:

Companies do this all the time. It's much better to have a debt and cash on hand then to have nothing. In Queen of Versailles, they talk about how he would even pay for his own house with cash and then take out a mortgage and dump that cash back into the company. It "doubles" your available cash for a nominal fee.

At that kind of level of business its not about doing things effectively or what's cheapest, its about cash flow rates.

El Pit wrote on Jul 24, 2013, 15:14:"...$4 Billion in its accounts, much of it kept in off-shore accounts..."

Yeah. Paying taxes is evil. Let the people pay taxes, not us multi-billion companies.

They did pay their taxes; they were taxed at where the item was sold in the first place. No one is dumb enough to pay taxes again, particularly when the entity trying to exert the second tax did nothing to provide for the sale being taxed.

NKD wrote on Jul 24, 2013, 09:22:Don't really have an understanding of all this financial mumbo-jumbo and the article didn't really help much.

I'm guessing this will sink more than a few projects though.

The basic point is that AB will have a lot less cash sitting around to finance projects, and their balance sheet will now not be as very strong as it is currently, which puts it in a relatively precarious position should a major project flop or whatever.

AB is a subsidiary of V. V is the parent/owns AB.

Subsidiaries exist to make profit and/or cash for their parent. In a sense, they are all one "V Group" entity, merely with a legal & accounting structure in place to provide a degree of administrative separation between the companies.

AB has tons of cash, V desperately needs cash, so V Group is shuffling cash from one bank account to the other.

It is not very clear why V taking $3b from AB, who has $4b, will result in AB needing to take on $1.5b debt. A few possibilities occur to me:- AB needs a ton of cash to finance it's own cash flows.- For AB to pay the dividend it will need to move the cash in from offshore accounts, which might trigger corporation tax. (In some countries, if you generate profits overseas that profit is only taxed in the domestic country when that profit is remitted to the domestic country.)- Dividends between companies might be taxable in one/both of the countries involved.